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Budget 2013 – final words

Just as it seemed as if it had been pulled off and a week after unveiling a draconian and unfair budget, with ministers stonewalling and boostering and the media cycle about to come to an end, a single dissenter in the Labour Party now threatens to split the Party and consequently undermine the Coalition. And that legacy of Budget 2013 will survive for weeks to come, it seems. Meanwhile the Social Welfare Bill and Property Tax Bill seem set to be voted into law before Christmas, so this is just an overview of what has happened in Budget 2013.

(1) The promise not to increase income tax was broken by Fine Gael – this was an election commitment which made it into the Programme for Government which commits the Coalition to “ Maintain the current rates of income tax together with bands and credits. We will not increase the top marginal rates of taxes on income. We will reduce, cap or abolish property tax reliefs and other tax shelters which benefit very high income earners. We will also ensure the implementation of a minimum effective tax rate of 30% for very high earners “. And the Labour Party broke again its commitment, which didn’t make it into the Programme for Government, to cut child benefit. Now the Government has been getting a relatively free ride by claiming PRSI is not an income tax, but as far as the IMF is concerned, PAYE, USC and PRSI are all income taxes. Both Labour and Fine Gael abandoned pre-election commitments not to tax the family home. Promises and commitments have been broken.

(2) The Fiscal Advisory Council was ignored (again). The independent Fiscal Advisory Council set up in a rush in July 2011 to meet an IMF deadline, again produced its pre-budget analysis and recommendations at a very general level for the Irish economy. And again, the Government and particularly, the Minister for Finance Michael Noonan “noted” the advice but for the second year running, dismissed it. The Council refused to do the honorable thing which was to resign which would then prompt the IMF to re-engage on the matter and presumably take robust steps to force the Government to establish some mechanism which would prevent the Charlie McCreevy “if we have it, we’ll spend it” type of economic policy perspective. But instead of resigning, the Council has remain muted on its role. Very disappointing.

(3) There was consultation amongst ministers before the Budget was announced, but not what was anticipated by the electorate or ministers when this commitment was made in the Programme for Government “We will open up the Budget process to the full glare of public scrutiny in a way that restores confidence and stability by exposing and cutting failing programmes and pork barrel politics.“ It was reportedly eight days before the Budget announcement when the four members of the Economic Management Council, Enda Kenny, Eamon Gilmore, Michael Noonan and Brendan Howlin, handed down the Budget to other ministers. This was the first time reportedly when they all saw the Budget though there had been bilateral consultations and exchanges beforehand. It was reportedly seven days before the Budget announcement when the government parliamentary parties had sight of the Budget and that’s when the leaks started. And there was a final meeting five days before the Budget announcement when the parties tried to push their own agendas but there was very limited change. All of this of course happened behind closed doors so we can only speculate about the reports, but it is a fact that there was very little prior consultation or “opening up the Budget process to the full glare of public scrutiny”

(4) The property tax is rushed and un-costed. Many people are still scratching their heads at the calculations underpinning next year’s estimates. What is clear is that the Budget announcement on 5th December 2012 was followed by the publication on 6th December 2012 of the expert report that has been sitting on Minister for the Environment, Community and Local Government Phil Hogan’s desk since June, followed by the publication of the 66-page Property Tax Bill on the 7th December 2012, and it is likely that the Bill will become law before Christmas 2012. So it has been rushed, there has been little consultation or debate and as revealed on here during the week, you can probably take the estimates of yield with a pinch of salt.

(5) Savings of €390m in Minister Joan Burton’s Department of Social Protection are more or less easy to see. Welfare is being cut. But there are even bigger savings in Minister James Reilly’s Department of Health, but people are scratching their heads wondering if the savings are feasible. And people have good reason to be suspicious – in 2012, it is Minister Reilly’s Department which has singularly failed to deliver savings – yes social protection is also up, but unless you cut benefit rates, the social welfare budget will be set by the number of people claiming.

(6) The debate and engagement by the Government in the aftermath of the Budget announcements were atrocious. It is 22 months since Fianna Fail was in power and this is the second Coalition budget and yet, any attempt by Fianna Fail to tease out or examine or debate budget adjustments was generally met with the refrain that reduces to Fianna Fail, a party which received 17% of the votes in February 2011, should not criticize or challenge this Government’s policies because of that Party’s record in office. And as for Sinn Fein, because of its legacy in the Troubles in Northern Ireland on one hand and because of its role in an administration in Northern Ireland, a country which depends on a €15bn annual subvention from Westminister, that Party which received 10% of the votes in February 2011 should not criticize or challenge this Government’s policies. For outsiders looking in at the operation of democracy in this State, this is patently shameful.

(7) No debt deal. Remember that it has been at least 15 months since Minister Noonan set off for Poznan in Poland for an meeting of finance ministers and where private talks were held with the ECB’s then-president, Jean Claude Trichet. Yes, it really was at least 15 months ago since negotiations started on our bank debt burden. Since then there has been the blether about technical papers being prepared by the Troika, a “re-engineering of the promissory notes”, an event in March 2011 when the Government settled the promissory note payment that then fell due by issuing a new sovereign bond. The Government said it didn’t “pay” the promissory note, but if that were true, you don’t “pay” for your meal in a restaurant if you settle by credit card. That’s what the Government did, and the credit card analogy is particularly apt because the sovereign bond issued to settle the obligation carries an interest rate of 5.4% per annum which is almost twice the interest charge on the bailout cash. Then in June 2012, we had talk of “game-changers” and “hard graft” and our very own Playboy of the Western World wooed us when he said that some people in Europe found out he was not someone to be tangled with too easily. There was an indication there would be a debt deal by October 2012, then that it would be settled before the Budget 2013 announcement and the latest is that there will be a deal in place by March 2013, and although there may well be a change in which the promissory note is repaid, the word on the street is that any new arrangement will be mostly optics and will not materially alter Ireland’s debt burnden.

(8) No bankers remuneration report. Even since the Fianna Fail finance spokesperson Michael McGrath reignited the furore about bankers’ salaries and pensions when AIB turned up for an Oireachtas hearing in October 2012, the Government has been protesting that (a) it is powerless to interfere in remuneration paid to bankers in utterly bust banks in which the finance minister owns all the shares (b) that the Government has commissioned yet another expert report to examine bankers’ salaries. No-one regards this tactic as anything other than an attempt to kick the issue into the long grass, and it does not take six months for a consultancy at a cost of €120,000 to produce a report – no, it takes seven months, even though An Taoiseach indicated the report could have been available before the Budget 2013 announcements. At this stage, we can conclude there is no political will to interfere in these salary arrangements and that it just for Paddies to offer up waivers of their salaries.

(9) Political salaries were left untouched, save for a minor reduction in the allowance paid to Independent TD’s in lieu of a leaders allowance and the fact that such allowances will need be evidenced with receipts, there was nary a finger laid on political pay and perks in Budget 2013 save for the €264 per annum extra that TDs and senators will need cough up in income tax/PRSI payments in 2013. Remind yourselves here how much the 166 TDs and 60 senators are paid in pay and perks, it’s both a scandal in the context of a Budget that should have placed solidarity at its heart but more practically, it makes a joke of Ireland adopting the “poor mouth” and shaking the begging bowl for a debt deal at our partners in Europe, when our own politicians earn more, and often substantially more, than those same partners.

(10) This Budget looks extremely regressive and the ESRI will no doubt give their verdict shortly, but what seems clear of that the Budget was not tested in advance to determine its impact on poverty levels. The spinning from the Government of the €500m of measures aimed at the wealthy out of a total Budget adjustment of €3.5bn is insultingly wrong, half the €500m – the change to pension allowances where the final pension will pay €60,000 or more per year – will only kick in, in 2014. So in 2013, a mere €250m of wealth-focussed taxes out of a total adjustment of €3.5bn will obtain. Ireland continues to have a progressive tax system, meaning those with more income pay more, but both the 2011 and now this, Budget have been regressive.

Will any of this make any difference? We will need wait for the next opinion poll to see how far the Government parties have dropped but even dramatic changes are unlikely to be taken seriously at this stage of the Government’s term, which naturally has another three years to run. The Labour Party’s internal troubles have a more immediate and profound potential, and it seems there are two sides emerging in a battle for the soul of the Labour Party, and this ultimately has the potential to undermine the Government and change the political landscape.

So broken promises, the independent fiscal council as useful as a chocolate teapot – but by God, they will not resign on principle – no debt deal, minimal pre-budget consultation, a mockery of debate, no debt relief and politicians acting like kleptocrats keeping their own pay and perks, and those of bailed out bankers, whilst slashing around them. And one lone voice of dissent amongst 110 TDs. So adieu then to the Budget until next year, when a further €3bn-odd will be taken out of the economy in Budget 2014.